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From Antitrust Law Daily, December 3, 2012

Blue Cross Blue Shield of Michigan Alleged to Have Harmed Health Care Purchasers Through "Most Favored Nation" Agreements

By Tobias J. Gillett, J.D., LLM.

Health care purchasers have pled sufficient facts to state plausible claims of antitrust injury arising from agreements that Blue Cross Blue Shield of Michigan made with certain Michigan hospitals, the federal district court in Detroit has ruled (Shane Group, Inc. v. Blue Cross Blue Shield of Michigan, November 30, 2012, Hood, D.).

The court denied Blue Cross's motion to dismiss Sherman Act and Michigan Antitrust Reform Act (MARA) claims seeking recovery of alleged overcharges caused by the agreements.

According to a complaint filed by six named plaintiffs, including an employer, two individuals, and three labor union trust funds, Blue Cross violated Section 1 of the Sherman Act and Section 2 of the MARA by executing and enforcing "Most Favored Nation" (MFN) agreements with at least 70 Michigan hospitals. Under these agreements, conforming hospitals must charge other commercial insurers either at least as much as they charge Blue Cross, under so-called "equal-to MFN" agreements, or more than they charge Blue Cross, under so-called "MFN-plus" agreements.

To obtain these agreements, Blue Cross would agree to pay higher hospital charges. The plaintiffs alleged that Blue Cross used its position as Michigan's largest health insurance company to secure these agreements rather than using its dominant position to negotiate lower hospital prices. Although Blue Cross's costs would increase under the agreements, its competitors' costs would increase more, granting Blue Cross a price advantage. The plaintiffs alleged this scheme resulted in artificially higher prices for hospital services for direct purchasers of health insurance in Michigan.

Each of the plaintiffs allegedly paid artificially inflated prices for hospital services at Michigan hospitals with MFN agreements with Blue Cross, and suffered antitrust injury.

The plaintiffs had pled sufficient facts to establish antitrust standing. For an antitrust plaintiff to have standing to bring a claim, the court explained, the plaintiff must show an "injury of the type the antitrust laws were intended to prevent and that flows from that which makes the defendants' acts unlawful."

Citing the Sixth Circuit's decision in Tennessean Truckstop, Inc. v. NTS, Inc., 875 F.2d 86 (1989), the court found that the plaintiff must demonstrate "1) that the alleged violation tends to reduce competition in some market and 2) that the plaintiff's injury would result from a decrease in that competition rather than from some other consequence of the defendant's actions."

Blue Cross had argued that the plaintiffs failed to satisfy the second prong of this inquiry, in that they had not alleged sufficient facts to show "the very injury that they say the putative class members must have suffered."

The court disagreed, noting that Sixth Circuit precedent with respect to Sherman Act complaints does not demand "heightened fact pleading of specifics, but only enough facts to state a claim to relief that is plausible on its face." The court concluded that the plaintiffs' individual claims "that they purchased hospital healthcare services directly from MFN hospitals in Michigan and that by doing so they were injured" were sufficient "to allege plausible claims of injury under an antitrust case."

The present lawsuit follows a civil antitrust lawsuit brought by the Department of Justice Antitrust Division and the State of Michigan, charging that Blue Cross's MFN agreements violated Section 1 of the Sherman Act and parallel Michigan state law. The federal district court has denied a motion to dismiss the government's action (2011-2 Trade Cases ¶77,568).

The case is No. 10-14360.

Brent W. Johnson (Cohen Milstein Sellers & Toll PLLC) for Shane Group, Inc. Donald Bruce Hoffman (Hunton & Williams LLP) for Blue Cross Blue Shield of Michigan.

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